NTG Clarity Networks Inc.

Good morning and welcome to NTG Clarity's Q4 and full year 2025 earnings conference call. My name is Ali Farouk, analyst at NTG Clarity. On the agenda for today's call, we'll start with management's prepared remarks on our financial and operating results for the three months and nine months ending December 31st, 2025. We'll then have a Q&A period answering questions from covering analysts and investors. Note that the full published report with audited financial statements, notes, and management discussion is available on CDAR and our website at www.ntgclarity.com. This presentation aims to highlight and summarize the key information already reported there. We will be posting both the slides and a recording of the presentation on our website following the call. So make sure to subscribe to our mailing list on our investor page on our website to get notified when those are available. If you have any further questions, that doesn't get addressed, please reach out to adam at ncgclarity.com, and we will get you an answer after the call. With that said, I'll be welcoming management for a remark shortly, but first, I'll start with a quick disclaimer. Certain statements in this presentation, other than statements of historical fact, are forward-looking information that involves various risks and uncertainties. Such statements relating to, among other things, the prospects for the company to enhance operating results, are necessarily subject to risks and uncertainties, some of which are significant in scope and nature. These uncertainties may cause actual results to differ from information contained herein. There can be no assurance that such statements will prove to be accurate. Actual results and future events could differ materially from those anticipated in such statements. These and all subsequent written and or forward-looking statements are based on the estimates and options of the management on the dates they are made and expressly qualified in their entirety by this notice. The company assumes no obligation to update forward-looking statements should circumstances or management estimates or opinions change. In this presentation, we also make reference to non-IFRS or non-GAAP financial measures that management believes are useful supplemental measures but not alternatives to net income and operating cash flow. Please see the non-IFRS measures section towards the end of this presentation, our press release, and our MD&A for details and reconciliation of non-IFRS measures to IFRS measures. With that, I'd like to invite Adam Jagwell, Vice President of Strategy and Planning, to begin his remarks.

All right. Thank you, Ali. Appreciate it. So, and thank you, everybody, for tuning in to our fourth quarter and full year 2025 earnings conference call. Q4 was another amazing quarter of growth. It was our highest billing quarter on record, and it brought us up to a total of 19 consecutive quarters of last 12 months' revenue growth. Saudi Arabia and really the whole Gulf region as a whole is continuing to invest heavily in their sort of diversification projects, becoming leaders in technology, finance, entertainment. And really, especially on the technology front, NTG has been able to enable them over the past few years. And the results are showing up in our financials. Really, over the past five years, we've posted a compound annual growth rate of revenue of about 60%. So really, I think NTG is becoming a clear partner when it comes to the continued development of the technology sector in the Gulf region. Now, definitely, probably one of the biggest headlines recently is the sort of geopolitical situation in the Middle East. And we're going to talk about it in depth shortly. But the short version is that we believe that our structural investment thesis is still very much intact. You know, if anything, the recent events have strengthened the need for Gulf states to diversify their economy away from oil and gas. And now we really see the desire to become the leaders in the technology and finance and entertainment continuing into the next decade. And of course, NTG being there to help enable and do the work that's required on that front as well. So I'll talk about our four-year performance. We finished 2025 with our strongest quarter on record. Q4 revenue was $23.9 million for the quarter, up 38.9% year-over-year. And that brought our full-year 2025 revenue to $83.4 million. That's about a $5.4 million revenue beat on our revenue guidance of $78 million. And it brought the full-year year-over-year revenue growth to about $48.5 million. So definitely a lot of work has gone into the continued growth this quarter and this year. So I want to take the opportunity to thank the whole NTG team for their continued hard work and dedication, but also all of NTG's clients for their continued confidence and trust in what we're able to deliver. I want to talk about cash collection and accounts receivable early on in the call this time because I know it's something that a lot of investors are keeping their eye on. Q4 was a really strong collection. Even with us billing the largest amount of revenue we ever had in a single quarter, accounts receivable and contract assets actually declined compared to Q3. We finished September 30th with an accounts receivable balance of about $29.7 million, and accounts receivable at the end of the year was $28.4 million, and that contributed strongly to our Q4 operation of cash inflow of about $2.8 million. For the full year, we didn't have any bad debt expense, and our receivables aging quality actually improved with total receivables sitting at under 90 days of age coming in at about 93% of the balance. But I want to set some realistic expectations going forward for sure, even though we did reduce our day sales at standing by about three days in Q3. You know, we have about a one quarter lag built in structurally to our billing cycle. And we're also giving some of our larger customers who we have worked with for years and also have a great degree of trust with a little bit of favorable payment scheduling. So I would not guide investors to expect the sales outstanding to contract uniformly over the next few quarters. But what I can tell you is that we're placing a strong focus on continuing to drive our cash receivable balance down, improve our cash flow, and that includes initiatives like offering a little bit of early payment incentive on some of our new contracts going forward as well. Turning to revenue quality, we're tracking two revenue and customer retention metrics this year that I want to walk you through. The first is net dollar retention. So for the full year 2025, net dollar retention was sitting at about 134.7%. So that means that for every dollar of revenue earned from a 2024 client, before counting any new customers or anything like that, You know, we earned in 2025 about $1.35, right? So $1 to $1.35 over the course of the year. So that means that they're deepening their engagements with us. You know, we're becoming a deeper and deeper part of their technology strategies, and they're trusting NTG with a higher scope of work. We're also tracking gross dollar retention, which for the year 2025 came in at about 99.3%. So over the course of the year 2025, we did churn a few customers, but the total revenue lost was on the order of about $400,000, so less than 1% of our total 2024 revenue base. So overall, you know, our retention metrics reflect how strongly our customers trust our quality of service, rely on us to be the sort of technical experts that are going to guide them through the transformation, and how eager they are to increase the scope of work with us as well. I'll touch upon customer concentration for the full year 2025. For the year, about 71% of our revenue was linked to our top five customers. But it's important to note that with a lot of these customers, we're not just working on one project or working with one point of contact. We are really working at every layer of some of our customers' operations. working on multiple projects, a lot of them linked to the Vision 2030 strategy, and we have been doing so for years. So we are becoming a really deeply ingrained part of their technical ecosystems, for sure. I'll just give you an example. Our largest client is a system integrator that does a lot of work for the government in Saudi Arabia. They're working on multiple concurrent Vision 2030-related tasks. And they're also one of the customers that's readily referring us to new clients. You know, a lot of our new customers come from word of mouth referrals from our existing customers. And this largest customer is no different than that trend and is largely responsible for a lot of our new work this year. And I would say, you know, probably most importantly is these large customers that make up the majority of our revenue are some of the lowest credit risk profiles in the entire kingdom. You know, each of the top five customers have been longstanding partners with us, and they have a consistent track record of timely payment of their invoices. So that reinforces both the stability and the strategic value of the revenue base that we've built. I'll look at the composition of our revenue growth. So of the $27.2 million in incremental revenues that we generated in 2025, just under $20 million, 19.9 million, or 73% of it, came from existing customers expanding the scope of their work that's allocated to NPDG. So this budget expansion with relationships, we already have, as clients continue to ramp the projects that are related to this sort of Vision 2030 diversification as well. Another 7.7 million came from new customers. So the majority of that work and relationships were sourced through word-of-mouth referrals from some of our existing satisfied customers as well. So that plus the $400,000 return that I mentioned before brings us to the total of about $83.4 million for the year in 2025. So I'll talk about some of our operating expenses now. Q4 operating expenses. came in at about 22.9% of revenue. And that breaks down into about 16% from G&A and about 6.9% from sales and marketing. So I want to address the G&A trajectory more directly. You know, G&A as a percentage of revenue has definitely run a little bit elevated throughout 2025 because we brought on some extra headcount in advance of some contract deployment that we saw in the future. You know, the investment was deliberate, and we didn't want to find ourselves in a position where we were understaffed to service some of the large contracts that we saw coming. We've also been investing a little bit in geographic expansion to some of the other Gulf states. You know, we can think about centers in Saudi Arabia itself, but also offices in places like the UAE and Iraq. And, you know, while those operations are scaling up, they're not going to be operating at the same kind of margins that our Saudi operations are. But we're confident that over time, as these operations mature, they will get to that same level as we see in Saudi Arabia. So as we look ahead into the future, you know, we expect operating expenses to remain at roughly their current levels, at least in the near term. And we're expecting to see some meaningful operating leverage as our revenue scales. You know, we see that the underlying cost base is largely in place. And incremental growth should flow through at a higher margin. You know, several of the new contracts that we referenced are already in place at least at the frame agreement level. But, you know, getting those first purchase orders so that we can start work is happening a little more gradually than we originally anticipated. But once these programs get into full execution, we expect the revenue to ramp against this sort of already established cost base and support a little bit of margin expansion that way as well. Moving on to profitability, Q4 adjusted EBITDA came in at about $3.8 million or 15.8% margin. Q4 net income came in at about $900,000 or about a 3.9% margin. And for the full year, adjusted EBITDA was about $11.9 million or a 14.3% margin. And net income was about $5.3 million at about a 6.4% margin. Now, the main drivers in the difference between adjusted EBITDA and net income are going to be foreign exchange and taxes. On the foreign exchange side, this year we definitely had a little bit of a headwind from foreign exchange. For the quarter, it was about $700,000, and for the year, it was about $900,000. And we really see foreign exchange as sort of always being a source of volatility when it comes to our net income. Some quarters, it'll be a net positive, and some quarters, it'll be a net negative. But at the end of the day, foreign exchange doesn't play materially into our day-to-day operations because you know, the vast majority of our revenue and the majority of our expenses are in US dollar-pegged currencies. But what it does impact is the consolidation of all of our operations into our financial reporting. Now, the other main factor that I mentioned is taxes, and taxes are definitely a very real expense, especially in 2025. You know, for the year 2025, we paid about $3.3 million in taxes. And at first glance, that's definitely much higher than what you'd expect a Canadian tax rate to be. But that's because we are being double taxed in both the Canadian and the Saudi jurisdictions. So we ended up paying an effective tax rate of close to 38% this year. But in order to combat this, in late November of 2025, we actually spun off our Saudi operations from a branch of the Canadian operation to being its own standalone Saudi LLC subsidiary. And that's in preparation to sort of restructure for taxes to make it so we reach our target of as much revenue as possible being recognized and taxed in only one jurisdiction. So we're going to continue to provide some updates as the tax situation unfolds in 2026. But again, our goal is to have as much of our earnings as possible, shelter as much of that 96% of our revenue as possible that comes from Saudi Arabia from being double taxed. But overall, as the tax situation improves as we plan it to in 2026, that will, or at least we expect it to shrink the spread between adjusted EBITDA and net income. So just to sum up the financial statements, this is a neat chart that shows that of our about $83.4 million per year in 2025, about 36% of that came through as gross profit. You know, that's within our typical range that we expect to see of that mid to high 30% range. Pre-tax income came in at about 10.3%, and then net income after taxes coming in at about 6.3% as well. So, I want to do a little bit of an honest accounting of our performance in 2025 compared to some of the targets that we set out. And, you know, just the first target that we have there, expand and deepen our client relationships, I think we definitely delivered on that promise. You know, despite the macro themes that are going on right now, we were able to post 135% net dollar retention and that 99% gross dollar retention. Our customers are continuing to work with us and expand those engagements as well. We're also winning new customers through word of mouth referrals a lot of the time. You know, we've put on about $7.7 million in incremental revenue from new customers in the year in 2025 as well. And our adoption and traction of our NTG Apps proprietary software platform continues to go strong, where NTG Apps year-over-year growth in terms of revenue contribution is up 179%. So all of those factors went into being able to deliver on our full-year revenue guidance. We guided for $78 million, and we were able to beat it by about $5.4 million, bringing up full-year revenue to $83.4 million. Now, when it comes to cash collection and AR quality, I definitely think that there was an improvement that we saw in Q4, right? Q4 showed the improvement that we've been working towards. Accounts receivable and contract assets declined by about $1.3 million in what was our highest billing quarter of the year and really of all time. And that contributed about $2.8 million in operating cash flow. But that being said, it's still important to look at the full year. And through the first three quarters, operating cash flow was negative as we had to scale our working capital with the scale of the business. Q4 is a better indicator of how we see our business operating when collections and execution are performing as expected, but consistency is still something that we have to show on the cash collection and AR side of things. On the adjusted EBITDA line, you know, the original 16 to 20% guidance range turned out to not be achievable under the deployment timelines that we ended up seeing. And we had to reset the range to 12% to 16% in Q3. And full year 2025 came in at 14.3% that I mentioned within that revised range. But it still fell short of that initial commitment. And the 2026 outlook and guidance that we'll talk about shortly is set with those assumptions sort of recalibrated as well. Now, before we get into the 2026 outlook and guidance for the year, I want to talk about the macro a little bit. Now, NTG is probably pretty unique in that we are sort of operating at the intersection of the two major macro themes in 2026, the first being artificial intelligence and how it impacts our business model. So investors often ask us, you know, are AI tools going to reduce the demand for what NTG does? And I think it's a fair question, but in our market and in our experience, we're not really seeing that play out in any meaningful way. So our clients are large Saudi financial institutions and government-linked enterprises that are executing these multi-year transformation programs you know these engagements involve uh you know a scope of work that goes well beyond what off-the-shelf ai products can really deliver we're talking things about cyber security um you know data residency constraints arabic language requirements uh regulatory alignment that we've spent years building up our expertise in and our work is really embedded across multiple layers of a lot of large saudi organizations And our contracts are typically one based on track record and longstanding relationships, as opposed to the sort of point-in-time cost savings that a lot of AI tools are purporting to offer. But that being said, AI is still providing us some benefit in terms of how we operate. We have a dedicated team internally who's working on both developing AI products, but also incorporating AI tools into our development and delivery workflows. So the near-term impact that we see from this is improved productivity, you know, teams are able to deliver more without needing more resources and capacity. And over time, we're expecting that to translate into margin expansion as the value that they deliver scales without necessarily needing any additional headcount. But we're also seeing AI increase our demand for our services, you know, provide some incremental demand On the one hand, we're integrating AI into our NTG app software platform, and we're also developing a lot of other AI offerings like our test player, online AI-based software testing, and our agent builders. And our customers are actually coming to us for early-stage implementations of these sort of AI-based tools, which provides contracts and engagements on top of what we had already contracted with some of our existing customers. So overall, we definitely see AI as a potential tailwind to improve our business. Now, the other major macro theme is the ongoing conflict in the Middle East, for sure, and its potential impact on our business. So we operate primarily in Saudi Arabia and Egypt, both of which have been not directly involved in the conflict. But of course, the region is experiencing some sort of second order effects. So the key question is whether the changes in the operating environment are going to impact NPG at all. The first and probably largest question is how the conflict impacts the Saudi fiscal position. So just to talk about, you know, the Saudi budget, which funds a lot of the initiatives that are going into Vision 2030. You know, the Saudi budget for this year was based on an oil price of about $80 per barrel. And at this time, you know, Brent crude is trading at about $108 per barrel. But there is also a decline in volume brought to market that goes along with that price increase. You know, estimates are going from about 7.4 million barrels per day pre-conflict to about 5.5 million barrels per day now. But the good news is that, you know, at the current volumes with the increase in price, Saudi government oil revenues are effectively flat versus pre-conflict. That gives us some confidence that the spending and the budgetary programs are still going to be on par with what was before. Now, when it comes to more our experience and client behavior, we haven't seen any change in execution. You know, purchase order timelines and project activity remain similar to what they were before the conflict. We haven't received any clients initiating sort of deferrals or cancellations on their work. And, of course, our Egypt offshore centers operate far outside the most directly exposed areas to the conflict. And I think overall probably one of the most important points is that Vision 2030 really is a structural shift in how Saudi Arabia structures its economy, right? So they want to diversify their economy, get away from being beholden to the oil and gas cycle, and really become leaders in technology and finance and entertainment. And if anything, the conflict in the region that's impacted its oil revenues has reinforced the objective and made it more important to invest. So the strategic rationale for the continued investment hasn't weakened at all. I would say just to close out, you know, the trajectory of the conflict is, of course, going to be uncertain. And we don't want to be speculating on any specific outcomes. But what we are going to do is continue to monitor, you know, both the geopolitical situation and also the sort of leading indicators from our customers, such as PO velocity, approval timelines, any sort of changes in the process that way. And we want to be open and transparent to investors about how that's impacting our timeline and how that might impact our guidance going forward. But with the context of the geopolitics and the AI scene out of the way, you know, I want to discuss our expectations for 2026, which sort of reflects a conservative view based on the sort of current conditions there. But we'll start with revenue guidance, which we're setting at being above $90 million. So this $90 million floor is really anchored in our contract backlog. And what we can see clearly coming down the pipeline, you know, We think it's an appropriate starting point for GotFence because it relies on our normal renewal and expansion contract cycle, and what it doesn't rely on is any sort of large windfall contract. So our backlog is sitting at about $88 million of purchase orders and contracts on hand as of December 31st, plus any POs and contracts that have been received since then. But it's important to note that this annual backlog number is basically the value of POs that we've received, plus the remaining commitments on our multi-year contract. most of which have just finished their first year billing. You know, it does not include assumptions for renewals of contract that expire during the next 12 months. So the combination of what's contracted for the next 12 months and what converts off those contracts in the next 12 months is approximately $60 million. And that leaves about $30 million in renewals and frame and agreement expansions and DOs from new agreements and that kind of thing to bring us to that $90 million. But I want to bring a little bit of context to that sort of $60 million one-year backlog number. First, we have signed multiple framework agreements in 2025 and in early 2026 that don't carry a contractual floor itself. So we expect purchase orders against those agreements to come through, but without any sort of guaranteed commitment, they are not part of the backlog. And actually, the build-down of one-year work for those multi-year contracts Plus the lack of the contractual floor in the new agreement is why the backlog has sort of reduced since early 2025. And second, you know, our two large major framework agreements that we announced back in 2024 actually generated POs in 2025 that were about 20 to 50% above the contractual floor in the first year. So the multi-year backlog reflects that pool. And since actual POs have run materially above it, it does give us some potential upside when it comes to revenue as well. So I'll move on to adjusted EBITDA guidance now. At the start of 2025, we guided to 16% to 20% adjusted EBITDA margin. But in Q3, we had to revise that range to 12% to 16%, basically recognizing that our headcount investments had scaled ahead of the contract conversion timeline. We finished 2025 at 14.3% inside that revised range. But the trajectory across the year matters more than necessarily the average. Q3 was our softest quarter at 11.9%. And Q4 recovered to 15.8%. That recovery is operating leverage that we've been describing so far, right? Revenue catching up to the cost base that we built ahead of it. For 2026, we're guiding to 13% to 16% adjusted EBITDA margin. So we've raised that floor by 1%. This guidance is set knowing that Q1 is going to be a little bit of a slower revenue quarter driven by lower operating leverage. You know, we see a pathway to that ceiling of 16% and even beyond it, but it does require some PO conversion from our current framework agreements and pipeline to drive even greater operating leverage. So what we've effectively done with this guidance is take the lesson from 2025, and we wanted to be sure to issue guidance that's readily achievable without relying on the conversion of large contracts. So one Q1 dynamic I want to be sure to flag is the typical impact of Ramadan and Eid on our business. So for investors that aren't as familiar with the Middle East, you know, Ramadan and Eid, they're not just like a one-day holiday, right? You know, it's basically a law of observance during which, in Saudi Arabia's case, working hours are reduced by law, you know, decision-making slows down, new projects are typically deferred until after Eid. The closest comparison I think it comes to in North America is that sort of mid-December, early January period where things slow down for Christmas. But overall, you know, Ramadan and Eid typically result in delayed sales cycles, billing cycles, collections, which typically picks back up in the following quarter after the holiday season. So Ramadan 2026 ran from mid-February through mid-March. And with that in mind, we're expecting Q1 to look more similar to this past Q3. So in Q2, we also have Eid al-Adha coming up around late May. But by late Q2, with Ramadan and both Eids out of the way, you know, we expect to return to some sequential growth and a stronger back half of the year. So that brings us to the end of the prepared remarks. I want to thank you for calling in and listening in to the earnings conference call. And I think we're going to turn things over to a Q&A session now. So we're going to start things off with questions from our covering analysts, and then we're going to turn things over to some of the questions that were written in by investors ahead of the call. So I'm going to see who is available for questions right now. And can we start with Aravinda Galavatege from Canaccord, if you're ready to come on the screen.

Oh, there we go.